The Phoenix Group today warned that a default Open Market Option “simply would not work” for consumers with relatively smaller pension pots.
Majority of people with a pension pot size of less than £10,000 do not wish to shop around despite Pension Income Choice Association’s (PICA) lobbying with the government for the introduction of default Open Market Options, claimed Phoenix Group head of annuities, Alan Bradbury.
Referring to the report published by the Association of British Insurers (ABI) last year, which found 96 percent consumers were aware of the Open Market Option, Mr. Bradbury said: “All barriers to stop people shopping around have been removed. People are aware that if they shop around they could get a better rate”.
Most people are not interested in OMO, said Mr. Bradbury adding: “The problem is that when people receive the welcome pack six months before they retire they may be unaware what an annuity is and some people simply don’t want to engage, even though they may get a slightly better rate from shopping around”.
Not everybody is willing to exercise the OMO option, he observed. “If they have a small pension pot sometimes they can’t shop around; some consumers just don’t care and others just don’t want to”, he said adding: “For some people the saving is tiny the benefit isn’t worth it, as it may be only a couple of pounds a month and people may not want to go down that road”.
People may get frustrated if they are forced to shop-around, but fails to secure a better rate, warned Mr. Bradbury.
“Some people just want to get things done, they want the monthly income and the big tax free lump sum. If this was held up because they had to shop around, they would find it frustrating”, said Mr. Bradbury.
“It could also be patronising as you cannot just assume that people are incapable of making a decision and have to be forced down a route”, he added.